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What is a Value Stock



๐Ÿ“บ "๐™‘๐™–๐™ก๐™ช๐™š ๐™Ž๐™ฉ๐™ค๐™˜๐™ ๐™จ ๐™ค๐™ช๐™ฉ๐™ฅ๐™š๐™ง๐™›๐™ค๐™ง๐™ข ๐™‚๐™ง๐™ค๐™ฌ๐™ฉ๐™ ๐™Ž๐™ฉ๐™ค๐™˜๐™ ๐™จ ๐™ฉ๐™๐™ž๐™จ ๐™ฎ๐™š๐™–๐™ง" You're going to hear this on CNBC and then they will compare a value ETF $VTV with a Growth ETF $VUG and even the S&P 500 $SPX500 . But most of these stocks on the Value ETFs are not really value stocks. What is a value stock?


๐Ÿ’ธ A value investor is someone who understands the ๐™™๐™ž๐™›๐™›๐™š๐™ง๐™š๐™ฃ๐™˜๐™š ๐™—๐™š๐™ฉ๐™ฌ๐™š๐™š๐™ฃ ๐™ซ๐™–๐™ก๐™ช๐™š ๐™–๐™ฃ๐™™ ๐™ฅ๐™ง๐™ž๐™˜๐™š. A business has an intrinsic value, regardless of the stock price. Value investors look for market inefficiencies, where the value of a stock is higher than the price, then they buy after taking a margin of safety.


๐Ÿ’ฐ The simplest way to ๐™˜๐™–๐™ก๐™˜๐™ช๐™ก๐™–๐™ฉ๐™š ๐™ฉ๐™๐™š ๐™ž๐™ฃ๐™ฉ๐™ง๐™ž๐™ฃ๐™จ๐™ž๐™˜ ๐™ซ๐™–๐™ก๐™ช๐™š ๐™ค๐™› ๐™– ๐™˜๐™ค๐™ข๐™ฅ๐™–๐™ฃ๐™ฎ is its liquidation value. If a stock is selling at less than its tangible book value, it is likely to be a value stock. Normally a stock selling under its tangible book value is called a deep value stock. Of course, if the stock is selling under its cash value and it doesn't have much debt it is even better. I can give the example of GameStop $GME when I started investing in it in September 2019. It was selling under its net cash value and tangible book value. In other words, you could repay all the debt and have more cash than the then market cap of the company. You could also liquidate the company, repay all liabilities and be left with more cash than you invested.


๐Ÿ”ข The father of Value Investing, Benjamin Graham, gives us in The Intelligent Investor, some simple metrics to know if a stock is cheap or not such as the Graham Number or the Net Current Asset Value. But I don't rely much on metrics. An example of a stock selling under its Graham Number and NCAV is Qudian $QD .


๐Ÿ’ฐ But the best way to find the intrinsic value of a company according to Warren Buffett is to look at the sum of the discounted owner's earnings till judgement day. This is a way to calculate ๐™๐™ค๐™ฌ ๐™ข๐™ช๐™˜๐™ ๐™š๐™–๐™ง๐™ฃ๐™ž๐™ฃ๐™œ๐™จ ๐™ฉ๐™๐™š ๐™˜๐™ค๐™ข๐™ฅ๐™–๐™ฃ๐™ฎ ๐™˜๐™–๐™ฃ ๐™ž๐™ฃ ๐™ฉ๐™๐™š๐™ค๐™ง๐™ฎ ๐™ง๐™š๐™ฉ๐™ช๐™ง๐™ฃ ๐™ฉ๐™ค ๐™จ๐™๐™–๐™ง๐™š๐™๐™ค๐™ก๐™™๐™š๐™ง๐™จ ๐™ค๐™ซ๐™š๐™ง ๐™ž๐™ฉ๐™จ ๐™ก๐™ž๐™›๐™š๐™ฉ๐™ž๐™ข๐™š. We need to discount the future since money today has more value than money in the future.


Always make sure to take a margin of safety and to stay in your circle of competence. Don't invest in a business just because some numbers say that it is cheap.


Watch the full video on YouTube:

https://www.youtube.com/watch?v=KiSIA93-JDI&list=UUPO3uUyoXSaFWG-Ldq1mqEQ&index=1



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